501c4 Nonprofits’ Image Problem Is a Problem for All of Us

In recent months, a narrative has taken hold that is compounding a reputational problem for an entire class of nonprofits—and it is threatening to rob advocates of one of their most powerful tools for effecting change.

The narrative is this: the Internal Revenue Service’s oversight of 501c4 social welfare organizations has lapsed, resulting in an explosion in the formation of 501c4 organizations along with irresponsible behavior by what have frequently been labeled “dark money” groups—so-called because they are not required to reveal all of their donors. A ProPublica article headlined “How the IRS Gave Up Fighting Political Dark Money Groups” directly attributed an increase in 501c4 organizations to the lack of IRS oversight activity.

An NPQ article, “The IRS’s C4 Regulation Problem,” took the conclusion a step further, noting that “the press often refers to these unregulated political players as ‘nonprofits’—not as c4s—and that means that any violations of trust land up in our collective reputational laps, not to mention their deleterious effect on democracy.”

As is often the case, the real picture is more complicated. The IRS has reportedly scaled back its oversight of social welfare organizations due to budgeting and other constraints, as well as complaints several years ago that it was only scrutinizing conservative 501c4s. It is also true that the number of social-welfare organizations has rapidly increased. This is due in part to the effect of the Citizens United decision on 501c4s, but there are other factors as well. For example, a recent article in Fortune tied the current volatile political climate to more groups choosing to organize themselves as 501c4s, because of the greater latitude a 501c4 designation provides when it comes to lobbying and political engagement. It would be a real loss if negative perceptions about social welfare organizations chilled this activity.

All of this activity is happening because 501c4 organizations can provide activists with more tools to advocate for change than the more well-known 501c3 organizations: A 501c4 can engage in all the activities a 501c3 can—and more. These organizations can engage in unlimited amounts of lobbying, which includes supporting or opposing ballot measures, and can also support or oppose candidates for public office.

Often, the partisan activity that 501c4s engage in is absolutely necessary to bring about policy change. For example, if a state’s legislative body consists primarily of climate change deniers, no environmental advocacy organization is likely to persuade them to pass green legislation, no matter how compelling their arguments. In instances like this, where issues are politicized, a change in elected leadership is often crucial for advocacy to succeed. But if the public is uneasy with the idea of creating and supporting 501c4 organizations, the progressive community will lose an important avenue for wielding political clout.

There are ways to address this problem. First, Congress does have a responsibility to act. Thus far, it has prevented the IRS from providing social welfare organizations with clear rules on their political activities by restricting the IRS from issuing guidance on primary and secondary (political) activities for 501c4s. Because this gray area exists, many 501c4s err on opposite ends of the spectrum—either not engaging in partisan activity due to fear about uncertain rules, or taking advantage of this lack of guidance by pushing the boundaries. Congress should give the IRS the funds it needs to provide additional guidance and clarity on the rules for 50c4s, as well as to more aggressively enforce these laws.

Second, we need to combat the notion that because 501c4s can engage in some political activities without disclosing their donors, they must be irredeemable “dark money” organizations. While this makes for a catchy talking point, it is incredibly problematic and very misleading. The Federal Election Commission, along with many states, actually does require the disclosure of donors to organizations engaging in political activities who give money specifically for those activities (most frequently independent expenditures). Accordingly, individuals who give money to 501c4s for political purposes are often disclosed. The disclosure of donors beyond this category can harm the advocacy community. 501c4s provide a platform where individuals can come together and speak out in a collective voice, allowing smaller donors to have the ability to have their voices amplified in the face of large corporate spending.

And anonymity is sometimes highly justifiable, as the Earl Warren-led US Supreme Court recognized in the case of the NAACP v. Alabama, in which the Court upheld the right of the NAACP to keep its membership secret. Requiring disclosure of donors, especially for smaller 501c4s that engage in local grassroots advocacy to benefit their communities, can not only disincentivize charitable giving, but in some cases can even serve to stifle dissent, as the Alabama government was clearly trying to do with regard to civil rights organizing in 1964.

Of course, it would be foolish to ignore the fact that some 501c4s have given the social welfare form a bad name. But that does not mean that we as advocates should accept the simplistic narrative that 501c4 organizations are inherently corrupt and impermissibly political.

To be sure, a stronger IRS regulatory hand would be enormously helpful. But we should never lose sight of the fact that many of the very organizations that advocate for policies that benefit the most underserved communities and protect the rights we have already fought for are 501c4 organizations themselves.

About The Author

Nikhil Pillai is Counsel for the Bolder Advocacy Initiative at Alliance for Justice, where he consults with and trains nonprofit organizations on the rules and strategies for legal and effective advocacy.